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Estate & Succession planning 2 June 2022

Fiery Family Feuds

Navigating family dynamics through different generations, jurisdictions, and changing times Featured article in the Private Client Global Elite “The Month” member only circular

Authors: Michael Giraud and Sanmari Crous, Standard Bank Fiduciary Services International

Gone are the days when the patriarch ruled and the rest simply followed – younger generations now have their own views, opinions, and aspirations, which may be significantly different to those of the patriarch/matriarch. We know, however, that the younger generations – even the avocado-loving millennials – can add value through their unique perspectives. That said, ensuring their constructive involvement in the family’s interests can be a challenge if not properly planned for and managed.

Younger generations often have different views on investment strategies. They are more interested in sustainability and ESG-focussed investments, and in some cases may even wish to diversify interests away from a sector in which the family has historically acquired substantial wealth. In addition, modern families are commonly geographically dispersed and immersed in different cultures, potentially leading to a complicated and sensitive family dynamic requiring careful and considered navigation by a trustee and a family’s advisors.

Add to this mix emotive assets, such as a family home or a longstanding family business that has been settled onto a trust, involving decisions regarding its retention or sale, management, and whether the business aligns with the beneficiaries’ interest or beliefs, and tensions can rise.

If not properly managed, a trustee’s involvement in a family dispute may exasperate matters. This may result from the trustee holding the purse strings: restricting allowances, sometimes holding back distributions, or refusing funding for a business in the absence of a proper business plan. What can a trustee do to avoid tensions escalating? The following describe the roles a trustee’s plays in managing family tensions.

 

 

Family Culture

A trustee should expect to play an important role in helping to manage complex family dynamics. Each family has a unique micro-culture, in addition to the societal culture in which members exist. Acknowledging this means understanding the roles and relationships within a family, the norms and rules, behavioural patterns, important personal events, and most importantly, the shared values of the family.

Only with an understanding of the shared values and objectives - and recognition of the differences - can a trustee, working with a family’s advisors, begin to facilitate a discussion around a family’s long-term plan. If assets permit, this may mean putting a family charter in place.

Letter of wishes

A trustee can facilitate the drafting of a bespoke letter of wishes (or a trustee’s memorandum), setting out the intention of the settlor and how they would have managed matters had they retained ownership of the settled assets. Although not a legally binding document, the letter of wishes will aid the trustee in their decision-making and, if properly communicated, help ameliorate potential tensions between beneficiaries. This is especially true for blended families with an unequal distribution or enjoyment of the family wealth.

The reality of intentions

A trustee must be well-informed of the different circumstances of a beneficial class. Trustees sometimes mistakenly focus on formal equality over substantive equality, making the trust a source of relationship stress instead of being a resource bringing the family together.

For a trustee, that means being aware of the different jurisdictions that beneficiaries may live in and what that means for them, be it the general cost of living, taxation of distributions, healthcare or education cost or levels, gifts of assets beyond the trust structure, past behaviour, etc.

Trust Deeds

A carefully drafted and bespoke trust instrument is invaluable. A well-drafted modern deed will not only provide parties with well thought out, modern removal and appointment mechanisms, but can make prenuptial agreements a requirement (removing the stress of a very sensitive topic from the family) and various committees can be drafted in to include family members on any charitable ambitions. The deed can furthermore provide whether investment decisions, such as when to sell an emotive asset, are to be considered by a wider committee; how people will benefit if they are directly involved in adding value to a structure and its underlying assets (e.g., a beneficiary running an underlying company); exclude family members if they fall foul of the law; ensure beneficiaries abide by the terms of an agreed family charter; etc.

A trust is of course one of many tools a family can use in their estate and succession plan to help manage family dynamics. The flexibility of a trust and its proven track record in assisting families for generations, however, makes it one of the most popular structures for families with a common law connection. That said, a well-drafted trust instrument will not in itself suffice: families should have an experienced trustee and advisors who know and understand their family and future aspirations.

Important Information

Standard Bank Offshore Trust Company Jersey Limited is regulated by the Jersey Financial Services Commission, to provide corporate and trust services. Registered office address is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ and registered in Jersey under No 9153.